Where Trust Lies: BlockShow on How to Value Risk

On Monday, a story emerged of a notable trader, Tone Vays, having his BitMEX trading account suddenly terminated, raising speculation as to whether it was a result of comments made about today’s BCH hard fork. With almost 170,000 followers on Twitter alone, Vays is a former VP at JP Morgan Chase and a highly influential voice in the cryptocurrency trading sector, so the closure of his account has fueled a debate around exchange regulations.

As all this unfolds ahead of Vays’ appearance at BlockShow’s Asia Blockchain Week, which takes place at the end of the month, it will no doubt raise further questions as to the current economic framework which governs cryptocurrency trading, especially given China’s supposed green-light to owning crypto, which received widespread coverage over the last week.

The BitMEX terms of service allow accounts to be terminated if they are identified as being owned by US citizens – due to strict SEC regulation on cryptocurrency exchanges – the timing of Vays’ account termination is suspect. Followers chimed in on similar events happening to them, with others who had, like Vays, been using a VPN to access the service, losing funds due to the sudden termination of their accounts. In Vays’ case, his termination came only hours after objectively criticizing the exchange’s stated policy on the Bitcoin Cash fork. Coincidentally, his YouTube channel was also suspended within the same timeframe. We reached out to Vays for more information on all of this, from his perspective.

While the loss of access to BitMEX is not likely to affect Vays significantly, with regards to being an avenue for trading, he was forthcoming in noting that its affiliates program, which incentivizes user growth by offering discounted fees to invited parties and a share of remaining fees to those who onboard them to the platform, served as a large portion of his revenue. Having brought over 900 traders to BitMEX, mainly through invitation links displayed on his live streams, the lack of communication that preceded his account closure seems unjust. We asked if, in light of this, he might share some advice for other BitMEX users, to which he replied:

“The advice for users is no different today than it was 3 years ago. These are unregulated exchanges which you can trade on anonymously and one day that will end. The only major countries where US Financial Regulation has no reach is Russia and China (or sanctioned countries like Iraq or North Korea) so, unless your exchanges are domiciled there and all the employees are citizens there and live there, enjoy the trading while it lasts.”

For readers based in the USA, this will be no surprise, and many will simply continue to use VPN solutions to anonymize themselves and circumvent regulation. What is important to note, however, is that US citizens account for a large portion of traders, with one informal survey putting the number at 23%. While there’s no doubt some of these will operate entirely within the strict requirements which have been put in place by groups such as the SEC – who once called the sector an ‘unregulated mess’ – many more will be operating outside such regulations, depending on VPNs and other tools to access exchanges. Vays continued by musing over the future of these unregulated exchanges, in light of increasing pressure from regulatory bodies:

“Every exchange that lets you trade crypto with just an email address will eventually be in one of these four buckets: they can either go from anonymous to compliant, like Poloniex; try to operate anonymously even after take-down, like BTC-e; the CEO can run away with the money, like Cryptsy; or the CEO might return the money to the traders, like 1Broker after the SEC/CFTC shut them down.”

As any trader will tell you, it’s a terrible idea to keep your funds on an exchange. There’s little to guide your trust and – as happened with Cryptsy – there’s no way to know that your money will be there the next time you log in. To trade, however, we take that risk – we need to trust the platform, even if only for a short while, so how do we determine whether the platform is “safe” to use? When we asked this question to Vays, he responded:

“It depends on your definition of “Safe”. To me the biggest safety risk is Governments knowing how much crypto you have. That means it is “Safer” to trade on anonymous exchanges where all you have is an email and no one can prove who you really are. On the other hand, the chances of losing all your crypto that sits on an exchange are much higher with unregulated exchanges. Not only are the owners of that exchange more likely to run away with it, the risk of a regulatory shutdown and account confiscation is very high.”

So, we are left with another dilemma. Either we retain the privacy that crypto was once infamous for, while risking our funds to shady exchange owners, or risk governments taking an unwanted interest in your trading. This month’s Asian Blockchain Week brings this last issue to debate during a session titled ‘Governments Taking Over Blockchain: What Lessons Can Be Learned From It?’. Now that so Blockchain draws political interest, regulation will only grow stronger. Meanwhile, traders will continue to look for ways to avoid governmental entitlement, an issue which will be addressed during the later BlockShow session, ‘OTC Crypto Trading vs The Traditional Exchanges’.

At the same time as Vays was investigating the termination of his account, his YouTube channel, serving over 75,000 subscribers, was also suspended. It happened around ten minutes after setting up a live stream titled “#OnTheRecord w/ @ProfFaustus – #BCash ( $BCH vs $BSV) Hard Fork”, before the stream even took place. While it seemed to closely related to his BitMEX troubles to be coincidence, we decided to ask Vays for his input:

“While I was not told why my account was shut down for streaming and then reinstated a few days later after I put in an appeal, my best guess is that it was a misunderstood title by google’s AI. The title ended in “Hard Fork” and if I had to guess, they auto flagged it thinking the video was going to be about something other than an interview.”

So, in this aspect of the case, it would seem the conspiracy theories can be dismissed. For Vays, it was a stressful few days and the lack of communication about his contributions to BitMEX’s affiliate program has yet to be resolved. For the rest of us, it’s important to know how the regulatory side of the industry operates – there’s risk involved whether in the ‘gray area’ of unregulated exchanges or under the watchful eye of compliance.

With upcoming appearances at conferences such as BlockShow Asia later this month, Vays’ experience should help steer the conversation towards creating models for more reasonable regulation, ensuring traders are educated in the risks of using exchanges or simply toward creating guidelines for trust in the exchanges industry. As Vays said, enjoy the trading while it lasts, the current environment that unregulated exchanges are free to operate in will soon be a thing of the past.